The bankruptcy of the Detroit automobile manufacturing industry can point towards exceedingly high legacy costs from its contracts with UAW (United Automobile Workers) as a large driver. We read about and learned first hand in Detroit how retired UAW members pensions and healthcare costs were exorbitant. The remarkably high costs were piling up at a time when foreign competition and rising oil prices were pushing the market share of the big companies down. The culmination of these factors lead to large automobile manufacturers losing billions of dollars in the span of a few short months. Eventually the industry had to reboot through bankruptcy and negotiating reasonable pension and healthcare benefits for retired automobile workers. The memory of this still lingers in Detroit and in the auto industry as a whole. However, the auto industry in the US is not dead and in fact there is a large amount of foreign direct investment occurring in the Southeast US by automobile manufacturers.
The emergence of new automobile plants in the South has lead to a move by the UAW to attempt to bring into the fold all of the workers at these new plants. Historically, the Southeastern United States has been conservative, which typically means that right to work and anti-union sentiments persist. Regardless of the political climate in the South, UAW has been pushing to unionize many of these plants, most recently a VW plant in Chattanooga, Tennessee. The thought by the UAW was that if they could secure a foothold with the VW plant, then they could use that as an anchor from which to unionize the rest of the Southeast. Much to the chagrin of Mr. King the UAW president, the workers of the plant voted against unionizing the plant. Mr. King points to political intimidation techniques used by state senators and the like as key reasons for the failure of the attempted unionization of the plant. However, many workers point to the climate and heritage of the area as to why workers voted down the plant. VW was one of the few manufacturers who took a neutral stance towards the unionization of its plants, and was for this reason a prime candidate. Many of the other automobile manufacturers in the Southeast moved to the region in large part because of the lack of unions and the tax incentives provided by local governments. It will be interesting to observe how the UAW approaches unionization of southern automobile manufacturers after the failure in Tennessee.
NYTimes article: “Defeat of Auto Union in Tennessee Casts Its Strategy Into Doubt”
VW’s stance was not neutral, except in the legal sense: they made it clear they would welcome the UAW.
Now legacy costs were exorbitant because retirees didn’t die. The UAW is not why healthcare in the US is more expensive by a factor of two compared to every other developed country, and it’s healthcare that dominates legacy costs. Now the UAW had wanted national healthcare in the 1940s, when the current system fell into place. (Steel and coal were the real players at that time, not autos.) It was large employers (including the Detroit Three, but again they weren’t critical on the margin) that insisted they should be the ones to provide healthcare. The history of this system does not show unions as the active party, except perhaps come the 1980s when they resisted cutting benefits. But even there, that implies that until the 1980s large employees weren’t interested enough in legacy costs to even bring it up as an issue. [I happen to know the individual at GM responsible for negotiating benefits in the 1980s, and have written a paper tracing this history.]